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Fourth Circuit Limits ERISA Plan Administrators’ Ability to Use Discretion as Grounds for Denials of Coverage


The Court of Appeals for the Fourth Circuit recently held that under ERISA, the “deferential review” standard is not a one size fits all seal of approval for plan administrators’ reasoning in denying claims. The case giving rise to this decision is Garner v. Central States and Southwest Areas Health and Welfare Fund Active Plan in which the Defendants denied the Plaintiff’s claim for the reimbursement of medical costs related to their back surgery. A court in North Carolina provided the original ruling in the case (later upheld by the Court of Appeals) that the plan at issue had “abused its discretion” in denying the claim.

The case boiled down to two significant issues relating to the determination that benefits would be denied, each addressed by the Court of Appeals. The first relates to the omission of an MRI scan in the documents to be analyzed by the first reviewing doctor in making their decision on the availability of benefits. This omission was held to be significant, as the results of the MRI were crucial to the Plaintiff’s treating doctor’s decision to operate. Secondly, no notes from the Plaintiff’s treating doctor relating to the decision to conduct surgery and discussion of the MRI were provided to the reviewing doctor.

The Plaintiff’s initial appeal was denied on the grounds that a second reviewing doctor had reached the same conclusions as the first. Thus, according to the Defendants, the lack of information provided to the first doctor did not preclude denial. The Court disagreed with this argument, stating that the issues with the first doctor’s review were not cured by the concurrence of the second doctor, as their opinion also misstated facts surrounding the Plaintiff’s need for surgery. As a result, the Court held that the Defendants’ denial of the claim was not “the result of a deliberate, principled, reasoning process.”

This conclusion provides that plan administrators were not acting in a “reasoned” or “principled” manner in their failure to provide the reviewing doctors with all of the relevant medical documents. The second doctor’s opinion misrepresented the facts of the Plaintiff’s treatment in relying on an incorrect belief that the Plaintiff had not attempted to undergo any “conservative” treatment prior to surgery, which in fact was untrue. On this aspect, the Court stated that a requirement that the Plaintiff undergo “conservative” treatment prior to surgery in order to receive benefits was incorrect and baseless. The Court stated that reading this into the Plan as a requirement would be “effectively … [adding] a new term to the plan, a term for which [the Plaintiff] did not bargain, and about which she lacked any notice.”

While the Court did not make a statement regarding bad faith on the part of the Defendants, they opted to uphold the lower court’s decision and require the Defendants to pay the claim rather than remand the case consistent with their opinion. With this decision, the Court of Appeals exemplifies that the discretion of plan administrators to determine how and why to deny plans is not unlimited. Further, if administrators do not provide reviewing doctors with all of the relevant medical information relating to a claim, this will be considered an abuse of discretion. In the same line of reasoning, administrators requiring that all “conservative” treatment options be tried and fail to correct the issue otherwise the claim will be denied is an abuse of discretion.

Lastly, the Court of Appeals highlights that if a determination of benefits does not align with a plan’s purpose, the underlying reasoning may be an abuse of discretion. The Plan at issue in this case was designated as a reimbursement plan for necessary medical services received by plan participants and their beneficiaries. The denial of benefits to the Plaintiff was in direct opposition to the purpose of the plan, thus the Defendants’ reliance on their ability to use discretion in administering the plan does not hold water.

This decision is a major win for ERISA policy holders, as it lays the foundation that plan administrators cannot unfairly deny claims and then rely on their ability to use discretion as grounds for doing so. ERISA holds plan administrators to fiduciary duties and provides that participants are entitled to a review of their claims that is thorough and fair. This decision solidifies the rights of plan participants, and correctly limits the ability of administrators to deny claims based on inadequate review processes.

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